Why Annual Percentage Rate is Crap for Refinance Rate Shopping

If you’re shopping for the lowest refinance rates from today’s best lenders you may have noticed that quotes are listed by Annual Percentage Rate. APR was intended to help homeowners pick the least expensive home loan factoring in interest rates and closing costs. Should you trust APR when shopping for a home loan or will choosing the lowest ARP get you the highest out-of-pocket expenses?

What is Mortgage APR Anyway?

Lawmakers intended for Annual Percentage Rate to help you shop for the least expensive mortgage loan. Unfortunately APR is a dismal failure and you should never use it to shop for refinance rates. Let me say that again…NEVER USE APR WHEN SHOPPING FOR MORTGAGE RATES.

Annual Percentage Rate is the single most manipulated marketing tool used by lenders to sell you an overpriced home loan.

Annual Percentage Rate is a government concocted formula designed to show you the true cost of your mortgage loan. Basically you take your loan amount less closing costs factoring in your payments for the duration of the home loan to calculate APR. Most lenders quote mortgage rates alongside APR highlighting their Annual Percentage Rate.

It’s not uncommon to find refinance rates that include an APR lower than the interest rate. Lenders love to advertise their low APR home loans pushing higher closing costs on unknowing borrowers.

How Annual Percentage Rate Falls Short

The formula lenders use to calculate their Annual Percentage Rates makes a number of faulty assumptions.

  1. APR Assumes You’ll Keep Your Mortgage For 30 Years
  2. APR Assumes You’ll Never Pay Extra or Make Bi-Weekly Payments
  3. APR Assumes You’ll Never Refinance

Another problem with the Annual Percentage Rate is the way lenders factor in discount points. Points raise your out-of-pocket expenses as a way of buying down your mortgage rates. While discount points lower your refinance rates and payment amount they raise your out-of-pocket expenses at closing.

Lower refinance rates and payments from paying discount points creates an artificially lower Annual Percentage Rate meaning you’re getting the most expensive closing costs with that “low, low APR.”

If you’re inadvertently paying too much at closing you’re not going to be able to recoup your out-of-pocket expenses, including any unnecessary discount points, meaning you’re going to be losing money no matter how low your refinance rates.

How to Shop For The Lowest Refinance Rates

The best way to shop for a new home loan is to compare interest rates and fees on quotes that do not include discount points. This can be tricky because lenders cook up different names for many of their fees just to confuse rate shoppers. What is the most commonly overpaid fee among refinancing homeowners?

The mortgage loan origination fee is one of the most overpaid and easily negotiated fees you’ll pay at closing. Pay less for your origination fee while avoiding mortgage lender junk fees and you’ll get the maximum benefit from today’s low refinance rates.

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You can learn more about getting the best deal on your next home loan from today’s best mortgage lenders by checking out my free Underground Mortgage Videos.

  • Underground Mortgage Videos
Here’s a quick sample to get you started shopping for the lowest refinance rates and fees…

IRRRL Mortgage Refinancing for Veterans

If you’re paying on a VA mortgage or are veteran with a conventional mortgage and want to take advantage of today’s low refinance rates there are several options available to you. According to the Veteran’s Administration, many veterans are struggling with qualifying for mortgage refinancing based on their employment status or income. Here are the basics you need to know about the VA government refinance program to help you lower your payment with today’s low mortgage refinance rates.

VA Interest Rate Reduction Refinancing Loan

The first mortgage refinancing option available for homeowners with an existing VA home loan is the Interest Rate Reduction Refinancing Loan (IRRRL). This is the VA version of the streamline refinance which requires little documentation or qualifying. In order to be eligible for the IRRRL refinance you must already have a VA mortgage loan and demonstrate a tangible benefit from the new home loan. This benefit would be lower refinance rates or converting from an adjustable rate mortgage to a fixed rate home loan.

You must be current on all of your mortgage payments and not have more than one 30-day late payment during the last year. You’ll be charged a fee to fund your IRRRL refinance of .5 percent of your home loan amount. You can pay this out of pocket at closing or roll the funding fee into your mortgage balance. If you’re a disabled veteran it is possible to get the funding fee waived.

The Interest Rate Reduction Refinancing Loan does not allow you to take any cash out against your home equity. Finally, you cannot consolidate your first and second mortgages using the VA streamline refinance.

The VA does not require a minimum credit score, home appraisal or proof of income to qualify for the IRRRL; however, many lenders enforce their own program rules called overlays. Some lenders require a minimum credit score of 640 or better just to qualify. If you find that you have trouble qualifying for the VA IRRRL because of lender overlays consider shopping around from a variety of lenders.

Not all lenders enforce program overlays when it comes to Interest Rate Reduction Refinance Loans. Community based and military credit unions are a good starting point when shopping for mortgage refinancing because they typically offer the lowest fees and refinance rates.

Other Mortgage Refinancing Options

If you’re a veteran and don’t already have a VA mortgage it is possible to refinance with a standard VA home loan. Be prepared to submit full documentation and meet the minimum qualifications for a VA mortgage loan. If you’re already paying on a VA mortgage and cannot find a lender to approve your IRRRL refinance you might still qualify for mortgage refinancing with the standard VA refinance. If you’re already in a VA mortgage and good credit and 20 percent equity you might want to look at both options to see which is cheaper.

If you decide to refinance with the standard VA mortgage you can expect to pay a loan origination fee which depending on the lender could be cheaper than paying the funding fee. If you’re short of cash it is possible to take higher refinance rates on a standard VA mortgage refinance to pay your loan origination fee and closing costs; however, in this case the IRRRL would most likely be the more attractive option.

If you’re looking to cash out on your standard VA mortgage refinance most lenders won’t let you borrow more than 90 percent of your loan-to-value ratio even though the VA allows up to 100 percent cash-out refinance loans.

Your Mortgage Refinancing Fees Matter

If refinancing with a standard VA home loan is going to be your best option remember that just because you’re getting a VA mortgage doesn’t mean you don’t have to worry about lender fees. The fees you pay for loan origination and closing costs will make or break the deal you’re getting on your VA refi. This includes paying unnecessary discount points to buy down your refinance rates.

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You can learn more about getting the best deal on your VA mortgage refinance by checking out my free Underground Mortgage Videos.

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Here’s a quick sample to get you started with today’s best mortgage lenders for your VA mortgage loan…

What is a VA Streamline Refinance?

VA mortgage loans are a program backed by the Federal Government to offer low-cost home loans to our nation’s veterans. The VA Streamline Refinance is a way for existing VA mortgage holders to take advantage of today’s low refinance rates with the agency’s Interest Rate Reduction Refinance Loan (IRRRL). Here’s what you need to know about VA Streamline Refinance and how it can lower your monthly payment and save you thousands of dollars.

VA Streamline Refinance Definition

VA mortgage loans are extremely attractive as they allow veterans to buy homes with zero money down without Private Mortgage Insurance (PMI). The term streamline refinance applies to FHA home loans and the HARP refinance for Fannie Mae & Freddie Mac; however, the VA’s Interest Rate Reduction Refinance Loan does the same thing.

If you don’t already have a VA home loan, in order to qualify you must have served in the armed forces or Coast Guard for 181 days during peacetime or six years in the Reserve or Guard. If you lost a spouse in the line of duty you may also qualify for a VA mortgage. If you served on active duty or in the Guard or Reserve you must have been honorably discharged to qualify for a VA purchase loan or a VA streamline refinance.

VA Interest Rate Reduction Refinance Loan

Qualifying for a VA Streamline Refinance allows you to lower your payment by taking advantage of today’s low mortgage refinancing rates. The streamline refinance process is extremely easy due to reduced paperwork and processing. If you’ve already got a VA home loan consulting a good mortgage broker can complete your Interest Rate Reduction Refinance Loan in under a month.

Your closing costs from a VA streamline Refinance can be rolled into the cost of your mortgage allowing you to close without paying out-of-pocket. It is also possible to have your closing costs and origination fee paid by accepting higher refinance rates from Yield Spread Premium. Just make sure the lender and broker aren’t gouging you on the fees you’re paying to close.

VA Streamline Refinance Requirements

As with any government refinance program there are requirements you must meet to qualify.

  1. You must be current on your payments
  2. You can have no more than one late payment during the past 12 months
  3. Your new payment must be lower unless you are refinancing your ARM
  4. Cash-out refinancing is not allowed
  5. Your home must be owner occupied
  6. You must already have a VA home loan on the property

The requirement for VA streamline refinance that you must already have a VA mortgage is often called VA to VA mortgage refinance. The IRRRL cannot be used by veterans that did not buy their homes with a VA mortgage loan.

VA Cash-Out Refinancing Is Possible

There is another program that allows veterans to cash-out equity in their homes while refinancing. The VA cash-out refinance works on any conventional or VA mortgage loan and allows you to borrow against equity in your home. The VA cash-out refinance does not work like a home equity loan but replaces your existing home loan. If you qualify you can refinance for up to 100% of your home’s value; however, you should probably think twice before doing this as you’ll quickly find yourself underwater in today’s economy.

The advantage of the VA cash-out refinance is that it works with any mortgage. Conventional, FHA, even USDA home loans are eligible meaning if you didn’t use your VA home loan to purchase you can use it to refinance. VA home loans generally come with lower interest rates than FHA home loans and do not require Private Mortgage Insurance like the FHA.

Additional VA Streamline Refinance Facts

If you used a VA mortgage loan to buy your home you will not need to get a new Certificate of Eligibility (COE) to qualify for your Streamline Refinance. You should note that the VA does not regulate interest rates for veterans under the VA mortgage program; they only insure the loan against default.

VA refinance rates are controlled by banks and lenders; shopping for the lowest interest rates and fees is important regardless of what government refinance program you’re using. You are not required to stick with your existing lender for either VA refinance program.

Lenders are not required to check your credit or have you pay for an appraisal as part of the VA streamline process; however, lenders are free to set their own requirements to qualify. Don’t be surprised if your lender pulls your credit or asks for a new appraisal on your property.

If you’re underwater in your existing VA mortgage it is still possible to qualify for an Interest Rate Reduction Refinance Loan although you may have trouble finding a lender to approve your application. VA home loans are not eligible for refinancing under the Home Affordable Refinance Program (HARP 2.0 & HARP 3.0).

If you’re eligible the VA Streamline Refinance is one of the best government refinance programs available. The main advantage is that VA home loans do not require Private Mortgage Insurance (PMI) which could save you thousands of dollars. Mortgage refinance rates are at their lowest levels in history so there is no better time to take advantage of your veteran’s benefits.

Click Here For More Details…

You can learn more about getting the best deal on your VA streamline refinance by avoiding unnecessary fees and markup by checking out my free Underground Mortgage Videos.

  • Underground Mortgage Videos
Here’s a quick sample to get you started finding the lowest refinance rates without unnecessary points or fees…

The Truth About Your Mortgage Origination Fee

Should you pay that mortgage origination fee when taking out a new home loan to purchase or refinance? Many homeowners opt for no closing cost home loans because they don’t have to fork over cash at closing; however, these loans can get quite expensive in the long-term if you don’t fully understand what you’re getting into. Here are several tips to help you avoid the expensive pitfalls that come with a no mortgage origination fee home loan.

Mortgage Origination Fee Definition

What is the mortgage origination fee? The person arranging your loan is known as the loan originator by the fat cats in the business, and the fee they receive for arranging your home loan is the mortgage origination fee. While there is no industry standard for this mortgage origination fee, it’s easy to find brokers and other companies charging as much as 2-3 percent; however, you should know that one percent is more than reasonable compensation for the broker’s work on your home loan.

So what about these no closing costs home loans? How is the person arranging your home loan paid? After all, as a homeowner I’m sure you’ve seen that there are no free lunches when it comes to anything related to your finances. The problem with no mortgage origination fee home loans is how much you’ll be paying out in the long run. The broker arranging your home loan is going to get paid no matter what, and if you’re not paying the closing costs that means the lender is footing the bill. What’s wrong with that you ask?

After all, if the fee’s not coming out of your pocket why should you care? The problem with no closing cost home loans isn’t that the fee is coming out of someone else’s pocket, it’s why they’re paying this fee for you. Always ask: “what’s in it for them,” right?

Mortgage Yield Spread Premium

There is a little known fee called Yield Spread Premium or YSP, which is the lender paid compensation for your broker. When you take out a home loan without paying the mortgage origination fee, you’re trading a higher mortgage rate in exchange for Yield Spread Premium paid to your broker. This usually works out to a payment of 1% for every .25% markup you accept in exchange for no closing costs. That’s no biggie; what could that tiny markup do to my monthly payment?

Here’s an example to illustrate the problem with no closing cost home loans. Suppose you are refinancing your home loan for $315,000 and opt for the no closing cost home loan. Your broker quotes you a mortgage rate of 6.5% and since there is no mortgage origination fee you’ll be saving $4,725 at closing assume the broker would have charged you 1.5%. Your payment on a 30 year fixed rate mortgage in this example will be $1,358 per month.

What you might not know is that had you paid that mortgage origination fee of $4,725 you would have walked away with an interest rate of 5.75%. The same 30 year, fixed rate home loan at 5.75% would have a monthly payment of $1,254. That’s a savings of $1,248 per year. The difference in your payments means by opting for the no closing cost home loan you’ll be paying that $4,725 over and over every four years for as long as you keep your home loan. Sill think that no mortgage origination fee home loan is a good deal?

You can learn more about purchasing or refinancing your home with a wholesale mortgage rate without paying hidden markup or junk fees by checking out my free Underground Mortgage Refinancing Videos.
Here’s a quick video to get you started today by exposing the truth about your broker’s dirty little secret that’s costing your neighbors thousands of dollars.

How to Get Low Rate Home Loans

If you’re searching for low rate home loans and want to avoid hidden markup and junk fees on your next refi there are several things you need to know to avoid overpaying. Did you know that according to the Secretary of Housing and Urban Development your neighbors in the United States will overpay sixteen billion dollars for their mortgage loans this year? And yet, a few minutes from now, I’ll show you how to avoid this trap your neighbors have fallen into. Here are several of my best tips for getting low rate home loans without paying junk fees or unnecessary markup.

Low Rate Home Loans Online

Did you know that all of the mortgage quotes you get online include hidden markup intended to create an extra commission for the person arranging these so-called low rate home loans? This “extra” commission is pocketed on top of the perfectly good loan origination fee you’re already paying the person arranging your mortgage and is the reason most of your neighbors are paying too much. How do you find low rate home loans? While it’s true that the internet can be an excellent resource for comparison shopping, if all of the mortgage quotes you get contain this hidden markup, what good is comparison shopping? (Just one of the mistakes made by your neighbors)

The same is true of the low rate home loans your mortgage broker promises you. The trick to finding the best deal isn’t comparison shopping mortgage quotes until you’re blue in face, it’s finding the right person to give you access to low rate home loans. There are honest, hard-working mortgage brokers out there that don’t take hidden commissions, you just have to find one.

How to Find the Right Mortgage Broker

Before you can find the right person to give you the access you want you’ll need to understand how this hidden markup works. Mortgage fat cats call their hidden commission Yield Spread Premium. Simply put, Yield Spread Premium is a fee, (think kickback) paid to the person arranging your mortgage for locking and closing with a higher than necessary interest rate. Don’t think you can avoid Yield Spread Premium by taking out a mortgage from your bank, they have the same hidden markup with a different name. So how do you avoid this insidious mortgage Yield Spread Premium when shopping for low rate home loans?

We’re back to finding the right person to arrange your home loan. Start by telling potential mortgage brokers that you understand how Yield Spread Premium works and will not accept any offers that include the markup. Offer to pay them a flat origination fee of one percent (which is perfectly reasonable for the broker’s work) and you’ll be well on your way to getting a wholesale mortgage loan.

You can learn more about getting low rate home loans without paying hidden markup or junk fees by checking out my free Underground Mortgage Refinancing Videos.
Here’s a quick taste to get you started on the road to saving thousands of dollars each year with a wholesale mortgage rate.